You are evaluating the feasibility of adding an injection molder to fabricate plastic sporks (everybody’s favorite harmless utensil) for the US Facility for the Criminally Insane. An injection molder will cost $1,200,000 installed. The annual profit is estimated at $340,000 while the salvage value is estimated to be $300,000 and the project lifetime is 8 years.
a) Determine the RoR.
b) How sensitive is the RoR to the salvage value? ( Hint: calculate RoR with salvage value = 0, and make your conclusion.)